Elanco Animal Health IncELAN
Elanco Animal Health Inc Leases Disclosure
Note 13. Leases
We have operating leases for corporate offices, R&D facilities, vehicles and equipment with lease terms generally ranging from to 15 years, some of which have options to extend or terminate the leases. In June 2025, we also commenced a five-year finance lease for our new corporate headquarters in Indianapolis, Indiana. We determine if an arrangement is a lease at inception, and if so, whether it represents an operating or finance lease. ROU assets represent our right to use an underlying asset for the lease term, while lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments. We use the implicit rate if it is readily determinable. Our lease terms may include puts or options to extend or terminate the lease or purchase the leased asset. When it is reasonably certain these puts or options will be exercised, the lease term and the purchase amount, if applicable, are considered in the calculation of the ROU assets and operating lease liabilities. We do not include leases with a lease term of 12 months or less within the determination of our ROU assets or lease liabilities.
ROU assets related to our operating leases are included within noncurrent assets on our consolidated balance sheets, while the ROU asset relating to our finance lease is included within property and equipment, net. Lease liabilities related to our operating leases are included within other current liabilities and other noncurrent liabilities on our consolidated balance sheets, while the current and noncurrent portions of our finance lease is included within long-term debt and finance lease liability, including the current portion. Operating lease expense is recognized on a straight-line basis over the lease term. For our finance lease, we recognize interest expense using the effective interest method and amortization expense on the ROU asset over the expected useful life of the asset. The principal component of our finance lease payments is classified within financing activities within our consolidated statements of cash flows, while the interest component is classified within operating activities. Variable lease payments, which represent non-lease components such as maintenance, insurance and taxes, and which vary due to changes in facts or circumstances occurring after the commencement date, are expensed in the period in which the obligation for these payments is incurred.
The impact of operating and financing leases on the consolidated statements of operations and cash flows for the years ended December 31, was as follows:
| Components of lease cost | 2025 | 2024 | 2023 | |||||||||||||||||
| Operating lease cost | $ | 58 | $ | 49 | $ | 42 | ||||||||||||||
| Finance lease cost: | ||||||||||||||||||||
| Depreciation expense (marketing, selling and administrative) | 2 | — | — | |||||||||||||||||
| Interest expense, net of capitalized interest | 8 | — | — | |||||||||||||||||
| Short-term and variable lease cost | 5 | 6 | 5 | |||||||||||||||||
| Total lease cost | $ | 73 | $ | 55 | $ | 47 | ||||||||||||||
| Supplemental cash flow information | ||||||||||||||||||||
| Operating cash outflows from operating leases | $ | 40 | $ | 35 | $ | 35 | ||||||||||||||
| Operating cash outflows from finance lease | 8 | — | — | |||||||||||||||||
| Financing cash outflows from finance lease | 2 | — | — | |||||||||||||||||
| ROU assets obtained in exchange for new operating lease liabilities | 43 | 33 | 28 | |||||||||||||||||
| ROU asset obtained in exchange for new finance lease liability | 226 | — | — | |||||||||||||||||
Supplemental balance sheet and other information related to our operating and finance leases is as follows:
| Asset/Liability | Balance Sheet Classification | December 31, 2025 | December 31, 2024 | |||||||||||||||||
| Operating ROU assets | $ | 116 | $ | 122 | ||||||||||||||||
| Current operating lease liabilities | 38 | 31 | ||||||||||||||||||
| Non-current operating lease liabilities | 86 | 92 | ||||||||||||||||||
| Finance ROU asset | 223 | — | ||||||||||||||||||
| Current finance lease liability | 16 | — | ||||||||||||||||||
| Non-current finance lease liability | 239 | — | ||||||||||||||||||
| Supplemental information | ||||||||||||||||||||
Weighted-average remaining lease term – operating leases | 4.6 years | 6 years | ||||||||||||||||||
Weighted-average remaining lease term – finance lease | 4.5 years | — | ||||||||||||||||||
Weighted-average discount rate – operating leases | 5.7 | % | 5.0 | % | ||||||||||||||||
Weighted-average discount rate – finance lease | 6.4 | % | — | |||||||||||||||||
Corporate Headquarters Finance Lease
Our five-year corporate headquarters lease in Indianapolis, Indiana, which commenced in June 2025, contains both an option for Elanco to purchase the headquarters facility and a put right for the landlord to put the facility to us, both of which, if exercised, would occur at the end of the five-year lease term for $250 million. Based on our review of the terms of this lease, including our expectation to exercise our purchase option at the end of the lease, we determined classification as a finance lease to be appropriate. In addition to the required minimum lease payments, our determination of the finance lease ROU asset and lease liability amounts at commencement also included this purchase option amount.
Additionally, as previously disclosed, the land for our new corporate headquarters is located in a Tax Increment Finance District, and the project was, in part, funded through Tax Incremental Financing through an incentive agreement between the City of Indianapolis and Elanco. The agreement provided for a total incentive of $64 million to be funded by the City of Indianapolis in connection with the future tax increment revenue generated from the developed property. This accrued incentive was recorded principally within other noncurrent liabilities, on our consolidated balance sheet as of December 31, 2025, and is being amortized over the period we expect to benefit from the use of the new headquarters. This amortization partially offsets the depreciation related to our ROU asset.
As of December 31, 2025, the minimum lease payments for our operating and finance lease liabilities for each of the next five years and thereafter, were as follows:
| Operating Leases | Finance Lease | |||||||
| 2026 | $ | 44 | $ | 17 | ||||
| 2027 | 33 | 17 | ||||||
| 2028 | 22 | 17 | ||||||
| 2029 | 17 | 17 | ||||||
| 2030 | 7 | 259 | ||||||
| 2031 and thereafter | 20 | — | ||||||
| Total lease payments | 143 | 327 | ||||||
| Less imputed interest | (19) | (72) | ||||||
| Total operating and finance lease liabilities | $ | 124 | $ | 255 | ||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 25, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Feb 28, 2020 | |
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.